Inflation or Financial stability, which will come out on top of the tug of war

GBP was on the rise against the USD yesterday and on the monetary front, BoE’s Bailley’s speech was hawkish in nature given the fact that he stated “what monetary policy can – and must – do is to make sure that the inflation that has come to us from abroad does not become lasting inflation generated at home”. This could be perceived as an indication to the intentions of BoE when they are meeting again on the 11th of May, opening the door to potential further hikes. This could in turn strengthen the GBP as BoE’s monetary policy seems to continue to tighten. Across the channel, EUR edged higher ECB’s Schnabel yesterday implied that the Fed’s liquidity services may not be up to par with reality as “As not all financial market participants have access to the Federal Reserve’s balance sheet, the floor might be “leaky”” therefore this inequality could potentially result in cracks in the financial industry that may not be visible to the public eye or even the government regulators until it is too late. The statement maintains the market uncertainty and thus we highlight comments of ECB policymakers later today. We should also note that Germany’s IFO expectations for March came in much stronger than expected despite the paradox of German workers staging strikes since the beginning of March. This could have negatively impacted the IFO, however it would appear that the German Business leaders have faith in the resilience of Germany’s economy in the long run and remained unphased by temporary setbacks. This could potentially positively affect the EUR given that Germany is the largest economy in the Eurozone. Following on the IFO releases ECB’s Nagel stated according to Bloomberg “It’s becoming ever more important to decide on further monetary-policy steps from meeting to meeting considering economic and financial developments,” thus repeating the rhetoric from ECB’s Lagarde and other policy makers that the ECB will decide on a meeting by meeting basis if there will be any interest rate hike, cut or the option to remain at current levels based on current market conditions. The difference between Schnabel’s and Nagel’s speeches are slightly different however with two combined it could be possible that the ECB may foresee further economic uncertainty in the market and as such is preparing in advance. Despite ECB’s main target being the curbing of inflationary pressures in the Eurozone, the recent social upheaval in France and Germany in combination with the uncertainty in the banking sector may force the bank to ease its aggressive hawkish stance which in turn could weaken EUR. US stock market sent mixed signals, yet we note that Lockheed Martin was awarded a $474.2M contract to continue its previous Trident II missile production for the UK, which may have a bullish effect on its share price. Furthermore, we note the Walt Disney announcement to fire 7,000 employees this coming after Florida Governor Ron DeSantis announced that Disney would lose its special status.

USD/JPY continues moving in a sideways channel since yesterday’s trading session. As such we maintain our neutral outlook as the pair’s RSI indicator is at 50. For a Bearish outlook, we would require a clean break below the 130.10 (S1) support level and the possible testing of support at 128.90 (S2). For a Bullish outlook we would require seeing the break above the 132.75 (R1) level and the possible test of the 134.65 (R2) resistance base.

EUR/USD is currently in a upwards movement after failing to break below support at 1.0715 (S1). As such we hold a bullish outlook for the pair as it moves in upwards motion, in addition to the RSI indicator which currently stands near 70 . Should the bulls maintain control over the pair we may see a clean break above the 1.0830 (R1) level allowing for a potential test of resistance at 1.0930 (R2). Should the bears take over, we may see a clean break below support at 1.0715 (S1) level and the move closer towards the 1.0650 (S2) support level.

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During the European we note the release the EU Business Climate for March, BoE’s Bailey and ECB’s Nagel,Lagardes speeches following by Fed Bar’s testimony before the US Congress. During the American session, the US consumer confidence for March and the US API weekly crude oil inventories, lastly during the Asian session we note Australia’s retail sales for February.